Short Sellers Sticking With Hostess Brands

• Short sellers loaded up on this snack maker in the most recent period.
• This remarkable turnaround story only began to trade publicly in November.
• The stock is up sharply since the beginning of the year.

Hostess Brands, Inc. TWNK, maker of the iconic Twinkie snack cake, rose from the dead in June of 2013, and shares began trade publicly back in November. Equity research firm C.L. King & Associates initiated coverage on Hostess with a Strong Buy rating, citing it as a compelling turnaround story within its industry.

However, judging by the ongoing rise in the number of Hostess shares short in the most recent period, short sellers still think they have found something tasty in the stock. The short interest was at a post-IPO high in the most recently reported period.

Between the January 13 and January 31 settlement dates, the Kansas City-based bakery company saw the number of its shares short gain almost another 14 percent to about 4.30 million. That is about 5 percent of the float. The short interest has risen in seven of the past eight periods, and at the most recent average daily trading volume, it would take about four days to cover all short positions.

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C.L. King said it expects the company's momentum to build over the next few years as Hostess rebuild its market share. The share price ended the short interest period almost 4 percent higher, though it was up more than 8 percent at one point. The Nasdaq was up only marginally in that time. Hostess Brands is around 14 percent higher year-to-date, though it continues to face resistance at $15.

The two analysts polled by Thomson/First Call recommend buying shares.